Two types of depreciation you can use to shrink a tax bill

Straight-line: This means each year you'll write off an amount from the asset's value. You can also claim this annual write-off instalment as your wear and tear tax allowance.

Reducing balance: Here you'll deduct the depreciation (15% each year) from the book value of the asset. This means each year the book value of the asset will drop. This will be the better method of depreciation to use on your company car.

But, how can you use this to reduce Mark's tax?

Here's how to use the depreciation of your company car to reduce Mark's tax

Normally the value of a company benefit, such as a company car, is 3.5% of its determined value. So Mark would pay around R7 000 a month on its original value.

But since the car's depreciated by 15% or R30 000, its new value is R170 000. This means Mark should pay 3.5% of R170 000 and his tax should be around R5 950.

There you have it: It's important to remember that your employee pays tax based on the value of the asset. As its value decrease, so must your employee's tax.

Vote article

Did you know: When the value of your company car goes down, so does your employees' tax bill?

DisclaimerCopyright 2017 Fleet Street Publications (Pty) Ltd. The information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. No action or inaction should be taken based solely on the contents of this publication. We do research all our recommendations and articles thoroughly, but we disclaim all liability for any inaccuracies or omissions found in this publication. No part of this publication may be reproduced or transmitted in any form or by means of electronic or mechanical, including recording , photocopying, or via a computerised or electric storage or retrieval system without permission granted in writing from the publishers.